/ Money

Let’s shatter the myth of ‘free’ banking

Some of the banks have suggested that the way to avoid future banking scandals is to let them charge for current accounts. It’s time to shatter the myth of ‘free’ banking.

Our latest research has found that some current account holders are paying as much as £900 in bank charges.

£900 in charges? Yes, charges for going overdrawn for two days per month without permission range from £120 to £900 a year. Yorkshire/Clydesdale Bank’s Current Account Plus will charge £75 a month on this basis, or £900 per year. The cheapest unauthorised overdraft, Halifax’s Reward Current Account, charges £5 a day (£120 a year).

Even if you have an authorised overdraft, there are still high annual percentage rates to fear when you go into the red. If you use your authorised £200 overdraft with your First Trust classic account six days a month, you’d be charged £185 a year.

All of this adds up to a hell of a lot of money. And it’s not just a few people paying these fees. Our survey of current account holders found that six in ten have paid a bank charge that they thought was unfair, hidden or disproportionate.

In fact, consumers are paying over £9bn a year in fees and lost interest. Clearly, banking isn’t free, so why are banks saying we should pay more for our accounts to avoid future crises?

Change the culture and practices of banks

Consumers shouldn’t be footing the bill when the banks have let us down so badly. In fact, we think that any agreement by the banks to start imposing a monthly fee (suggested even by the FSA) would breach Competition Law. This also alludes to collusion, which would prompt us to call for strict penalties against banks that get together to fix fees.

To suggest that banks increase charges to avoid more scandals defies logic and is nothing more than a slap in the face for consumers who are being hit hard by one of the worst financial crises in recent history. It’s even more ridiculous when you consider that consumers bailed out banks in the first place.

So let’s put a lid on the myth of ‘free’ banking. Instead there needs to be a fundamental change to the culture and practices of the banks, including greater transparency about the true cost of banking. Ultimately, the current parliamentary banking inquiry needs to put you and me, the consumer, first.


A sensible comment. Customers should have the ability to change banks. They can but it is not easy and requires some persistence.
Never change a bank. Merely start a new account with another bank. I have tried twice so take my advice.
The reason it is so difficult is the barriers erected by the Government. So called money laundering and regulation.
Regulations never, repeat never, works.
Money laundering assumes everybody is a criminal until proven innocent.
Two reasons, among many, where the Government is our enemy

Michael A Richardson says:
25 August 2012

Free Banking is clearly NOT a myth. I have recently studied literature/brochures from some different banks, and ALL clearly state their charges and fees. It is surely a case of many consumers simply not reading the information given, because of pure apathy or laziness. A consumer should surely EXPECT to be charges if they go overdrawn without permission, as they are expecting a cheque to be paid when there are insufficient funds. WHY SHOULD IT BE FREE ??? The levels of charge are bound to be different – if they were the same, the banks would be accused of collusion. Those being charged £900 per year have the option of moving accounts – IF a new bank is willing to accept someone who obviously cannot manage their money. The Banks have made very many mistakes but “Bank BASHING” will not cure the financial crisis, nor will the many thousands of people who have joined the band wagon to reclaim PPI stating in many cases that they were misold the product and in a huge number of cases when they have never had the product – is that not fraud ? I accept that many were misold PPI but the vast majority, wanter the comfort of the cover, but now the loan is repaid, claim that they did not need it – rather dishonest is it not..Peter Vicary=Smith, the chief executive of Which, should not need to make explosive comments about the myth of free banking, it is there for millions of people who conduct the account properly and have READ the terms and conditions of the account.

Completely and utterly agree – First Direct have been completely up front in how they offer a free to use banking system provided you do not become overdrawn.

Far too many – encouraged by Which? – want something for nothing

Hi Michael, we’re arguing that calling banking ‘free’ is a myth, not necessarily that it should be completely free. Though banks like First Direct, which is our top recommended bank, might be very good at explaining charges to customers, others are not as transparent and the charges are often excessive (as shown in the examples we used). There’s also lost interest from poor 0.1% interest rates.

As much as we agree that you should your T&Cs, we have written many Conversations about how unclear T&Cs can be. In fact, our latest campaign, Fixed Means Fixed, is about mobile price rises being unexpectedly imposed on customers. There is a term that allows this in mobile companies’ contracts, but it’s hidden in the small print and isn’t something the reasonable person would expect: https://conversation.which.co.uk/technology/fixed-means-fixed-campaign-mobile-phone-price-rises-ofcom/

We want the new regulator, the FCA, to have the power to clamp down on overdraft charges that are too high, too complex and too difficult to compare. We also want it to be easier to compare and change bank accounts. We’re raising these issues with the FCA, the Treasury, the OFT and the Parliamentary inquiry into banking.

Our PPI checklist also helps people with when they can legitimately claim missold PPI: http://www.which.co.uk/campaigns/personal-finance/the-ppi-campaign/mis-sold-ppi/

Which is a consumer magazine. It writes articles to appeal to consumers. Ego Business bad, consumers good.
That is obvious nonsense. The truth is the opposite. Without business nothing would get done. It is the profit motive that drives forward our living standard.
When which started it was pioneering in that it gave a voice to consumers in what was then a tightly controlled socialist economy.
Now we have had Thatcher and globalisation. Which is an old fashioned magazine trying to appeal to the type of audience inhabited by Daily mail, and Sun readers. I cancelled my subscription more than twenty years ago.

If you had not cancelled your Which? subscription you might more in touch about what Which? is doing, John. 🙂

Nope Wavechange – I still pay my subscriptions but agree with John – Which? is not serving it’s subscribers as well as it should. I’m considering un-subscribing too..

I suggest that we get back to the subject rather than discussing the merits or otherwise of Which?

Why? This topic received a lot of negative comments and reactions in other forums about the role of Which? the consumer magazine – surely we should debate about the merits of Which? after all we pay for it.

I realise that I risk getting shot down in flames here, but am I not right in saying that Which? CONVERSATION is open to anyone, not just Which? subscribers and if I am correct then, quite apart from being off-topic, this isn’t the place to discuss the Which? Members’ only magazine, reports and subscriptions.

I don’t always agree with Which? either, but I don’t think we will get them to make any changes we’d like to see by debating it on a convo dedicated to something else.

Hello John, we haven’t said that banking should be free – we’ve said that the concept of ‘free banking’ is a myth due to the often excessive fees and missed interest. We don’t think it would be appropriate to charge more for current accounts when such fees are often unfair and not transparent – we also think it is completely unfounded that charging more would stop mis-selling or clean up banking. We understand that you can’t get everything for free, but that’s our point – banking isn’t free, and charging more won’t fix the broken banking system.

We are working to make sure consumers voices are heard and campaigning on your behalf so that we can have a financial regulator that is not afraid to stand up for consumers and challenge the banks: http://www.which.co.uk/campaigns/personal-finance/watchdog-not-lapdog/

The OFT announced that it will be reviewing the personal current account market, and we want the investigation to lead to the increase transparency of bank account charges to allow people to better manage their accounts. We’re also calling on the new Parliamentary inquiry into banking to make sure banks start delivering for customers.

With all the calls for more transparency in banking and demands that, in retail banking, fees and charges are related to actual costs involved .
It is not surprising then that banks are looking at charging structures.based on a realistic cost per transaction or a monthly fee which are easier to defend as transparent and more related to actual costs involved.
I suspect most people do not want this and are happier with the non-transparent method of not being paid realistic interest on current accounts which covers the cost of the service ( averaged over all customers).
Other services such as mobile phones and broadband provision operate an offset and averaging charging systems ; I doubt anyone actually gets charged on an individual basis for the actual cost of their broadband usage.

Why does the headline refer to the ‘myth’ of free banking? My current account is free (i.e. I am not charged for having it, or for making transactions) as long as I remain in credit – which I always do. OK, I don’t get any interest on the credit balance, but whenever the balance builds up I make an online transfer to a savings account (I can always transfer it back to the current account if I need to). I would not be at all happy if my bank reintroduced fees (many years ago I believe it was normal to be charged for transactions). I would feel that I was subsidising people who go overdrawn or were breaking the rules. Why shouldn’t those people pay for the privilege?

Peter Hutcison says:
26 August 2012

Registered Charities are overseen by the Charities Commission. One I know has been shut down by the Commission for financial irregularities. Its main funder had also cut off its finance. Some of the senior staff will be prosecuted.

Most of the Charities I know about have no paid staff. Everything is done by volunteers. The one Charity I know that has paid staff has rates of pay that are less than my pension and unbelievable job insecurity. That Charity relies heavily on volunteers too.

We started on bank charges, now we are talking about charities, of which I know a great deal.
Charities are business, or at least they have to be run as business. Therefore is no reason why they cannot use electronic banking just like everybody else.
As an aside I have worked as a volunteer on several charities and have studied them closely. Many, although not all, exist to give their staff a good living. Many of the salaries would make a banker blush. I can give names if you want.
I have met many officials from the Charity Commission. They said to me they simply do not have staff to regulate the charity sector and in any case regulation is not their job. There is plenty of statutory and case law regulating charities.
The word charity has a good public image. But the fact is a charity is responsible to no one, at least in practice, although not in law. But the law is too cumbersome a weapon. A company at least has shareholders keeping an eye on what is happening.
So stand by for a raft of scandals involving the Charity sector.

I’m not sure here is the best place to criticise charities.

The charity I do most work for is NOT a business. It is a small charity run entirely by unpaid volunteers. Most of our reserves are in a CAF account and we have a current account based at branch close to where our treasurer lives. Like our treasurer, I use electronic banking wherever possible.

Much of the money we collect is in cash. I collected £145.69 in cash this afternoon. I paid this in to our charity’s current account when I got home and will use the cash myself or make a trip to my local bank. Quite frequently I am presented with a cheque, often in the countryside. I would be inappropriate for me to ask anyone to make a payment in advance and inadvisable to expect that they would pay later. Many of our kind donors are elderly and do not have a computer.

I am a trustee of our charity and am very happy that it is run in a businesslike fashion. I am happy to take cheques and so is our treasurer. We have at least 20 members collecting funds for our charity and most of the donations are either cash or cheques. We do encourage all members to pay their membership by standing order, though many choose to pay by cheque or in cash. Our county council recently awarded us a cheque for £1500 and the town council gave us a cheque for £100. I’m not sure how you would handle this, John, but I have friends in a local wildlife trust and a hospice that use electronic banking but also handle a considerable number of cheques.

Hi, if you’d like to talk about charities please have a look at some of the Conversations we’ve started on the topic: https://conversation.which.co.uk/tag/charity/

One of our key rules on Which? Conversation is to stay on topic: ‘Please keep comments relevant to the topic at hand – remember this isn’t a forum. Veering off to add colour to your point is fine, but off-topic posts may be removed to keep the Conversation on course.’ https://conversation.which.co.uk/commenting-guidelines/

Hopefully we won’t need to remove any comments! Thanks.

I had already looked and could not find a relevant Conversation to discuss the financial issues relating to operating charities, Patrick. Perhaps we might be better on one of the ones about cheques and hope that does not go too far off-topic.

Whatever happens with personal banking and charities could well be similar. Any surcharges for using cheques would be likely to apply to both.

I have not and never would say you should not use cheques. However, I do think you should pay for their use.
That is only fair on other uses of bank accounts.

And in the same way, John, as Wavechange and I and some others have said a while ago, users of ATM’s, Debit Cards and on-line transactions should also be charged for their use, particularly the Debit Cards which have considerable “hidden” costs, as I outlined in details a while ago.

I don’t think many people on here are disagreeing with the fundamental point that all types of transaction attract some sort of cost; what the convo is about and what people are disagreeing on in the best way to collect that cost or charge and the best way to make it understood (‘transaparent’) to the general public.

As far as I can see everything (on topic) that has been said on this convo so far boils down to the necessity for us to choose one of three models:

a) Charges per transaction, like we used to have until the early to mid 1980’s, which reflect the actual cost of processing each transaction. This will be unpopular with most of not all people because it will reveal the true cost of every transaction and in many cases this will be an unwelcome surprise for the customers.

b) “Bundled charges”, such as mentioned by Which? at the outset. Some people (who already have accounts with some sort of ‘membership fee’) will be used to these and will probably think this is the best option. Many people, like me for example, who avoid all charges at present by the way we conduct our accounts, will dislike this idea because it feels like we are being charged for the sake of it. In reality, **if done properly and transparently**, we’d probably be paying a fair if not discounted rate for the services we use. It’s the bit inside the ** above that’s the issue: I’m not at all sure we can trust any of the banks to do it properly and transparently.

c) The status quo. This is anything but transparent and it’s not particularly fair for a plethora of reasons. However, as most people are used to it and many never knew how things used to be before it is, on the surface, the most attractive option for a great many of the public. It’s probably not a choice we’ll have for too much longer though, as Banks are desperate to make more profit and Government and organisations like Which? are keen to encourage the banks to make things clearer to customers.

Bob Bill says:
4 September 2012

Or Shareholders?

Chris says:
27 August 2012

As many say, nothing in life is free. Banking is a service and consequently will cost. My compliant is that banks are not upfront with their costs, rather they keep then hidden. Is it because in reality the costs are too much, or do they have trouble with honesty?

rogerroger says:
29 August 2012

I have remained with the same bank for many years as I have never had cause to wish to change it. I have never paid any charges; I would be very unhappy if they required me to pay a fee and I would look elsewhere. I have an income paid in each month but I leave sufficient funds in the current account so I do not have to worry about going overdrawn accidentally. I accept that it is not “free” as the bank uses the interest in effect to pay for the account, but as interest rates elsewhere are very low, the convenience of always having funds available is worth the theoretical loss. I agree that, were the banks to charge a monthly fee, other charges would not be significantly reduced, so only the banks would win.
I sometimes use cheques as there are situations when they are the only sensible method of payment, so I do not see why they should be phased out as that only benefits the banks.

Bob Bill says:
3 September 2012

Here’s HSBC’s idea of free banking:

1 – You post them a cheque to pay your credit card
2 – They loose the cheque for 2 weeks (until after the due date) and advise you to cancel it
3 – £12.50 if they do it, £10 if you do it online – ie you press a few buttons on your computer rather than them doing it
4 – You complain about the charges due to their error, plus they took the opportunity when ringing one of the expensive phonelines at my own expense, to try and sell me a loan
5 – They promise you refund, then refund 60% of what was promised
6 – The missing cheque appears mysteriously on your CC statement the next day
7 – Then they ignore your cancellation until you really kick off at them – mine was stopped after I played steam again, 11.30 at night, 31 mins before the cancelled cheque would have cleared my account
8 – No apology, and 24 hours later no reply or compensation, although they did finally stop the cheque, they did not confirm this

Banks and politicians are the lowest of the low, for the mess they created for all of us who don’t live on outrageous wages, or tax payer financed bonuses and expense accounts. Plus the arrogance and criminal acts of the LIBOR and PPI scandals.

Bob Bill
You could have amde this payment in seconds if you had used electroci banking.
I am with HSBC. They should not have to put up with people lie you. As a shareholoder of HSBC I invite you to move to another bank

[Hello John, we have had to edit your comment for breaking our our commenting guidelines. Thanks, mods.]

Bob Bill says:
4 September 2012

John, invite all your disgruntled customers to find another bank, it’s your dividends that are going to take a knock not mine

Hi both, can I just remind you of our commenting guidelines https://conversation.which.co.uk/commenting-guidelines – it’s fine to disagree with one another, but don’t make it personal. Thanks.

Current accounts might not pay interest but we can do more or less what we want if we stay in credit.

I am amazed how many people use cash dispensers to withdraw a single note of the lowest denomination available. That must make for a lot of transactions on their account, but I suppose it means that they are minimising the cash they carry around.

Natwest, which I bank with, suggest that I pay in several cheques using a single paying in slip. I explain that doing a separate slip for each cheque helps me to check my statement. The charity I work for banks with HSBC, and they have accepted many cheques without a single comment.

You don’t think it is because some people have so little – they limit the money taken out? I know many OAPs who don’t have enough to carry a spare £20 note. This is also true of many young people too.
It is easy if your income comfortably exceeds your out goings – hard if not.

Richard makes a fair point but as Wavechange implies, if banks have to – or decide to – start charging customers for each account activity according to its economic cost then people with not much available money will find day-to-day banking prohibitively expensive. There seems to be a need for a vey simple, no-frills, banking service readily available throughout the country. The Post Office and the Trustee Savings Bank used to meet this requirement. Possibly to the astonishment and against the expectations of the policy makers, the media, the corporate establishment, and unfortunately some Which? researchers occasionally, in the real world outside the home counties a lot of people really are living from hand to mouth, do not have a computer, and do not have the personal administrative competence or resources to cope with the financial arrangements essential for managing their money in the most advantageous way. They are paying higher marginal costs for their utilities, TV licence, insurances and banking services than prosperous customers who increasingly object to “subsidising” their transactions. An inclusive universal society and the rapacious segmentally-driven world of commercial services are increasingly at odds.


I don’t know about the financial status of those in front of me at cash dispensers but most conspicuous among those withdrawing a single note are groups of young women who obviously cannot afford dresses that cover very much. I presume that they are heading for pubs and clubs. My point is that there are many transactions at ATMs. I have no idea how much it costs to maintain an ATM, but keeping them topped is a job that can only be done by humans.

John makes some good points about the need to provide banking services to suit the needs of everyone. I used to see many pensioners collecting money at the local Post Office, but that closed when the postmaster retired, and never reopened.


I really get the impression you have little idea about how the really poor live. The usual reason for the poor only taking a little money out is because they have little in – and they do not want to overspend what little they have – or take a chance on losing it. Their dress sense has little to do with their financial situation however much you disapprove.

The Post Office used to be the usual “bank” – until a certain “government” decided to force wages payment into a bank account. People used to be paid cash – now it is rare outside the building trade for small jobs.,…

You are absolutely right that I don’t know much about the poor, Richard. I have not commented about this but about the large number of ATM transactions. Incidentally, many of those I have seen withdrawing a single note have been clutching an iPhone or other expensive smartphone.


Sadly this confirms it – The large number of ATM transactions is directly related to poor living conditions – A great many of the poor and vulnerable cannot hold a “large” amount of money because of the high likelihood of it being stolen by poverty stricken siblings and friends. A smart phone is not an indication of affluence – it is often second hand or even stolen (you do know that phones are the most stolen piece of kit around don’t you?).

I have worked with and for the poor and vulnerable for over 60 years – your attitude sadly really needs updating..


As Patrick woud say, it’s fine to disagree with one another, but don’t make it personal. 🙂

It is sad but true fact of life that some people are richer than others, some are fatter, taller, cleverer etc than others.
So we need a system that increases wealth. We have it. It is called capitalism. And it works and has worked for thousands of years.
One consolation for the so called ‘poor’ They live in the UK. They are far far richer than say, Ethiopia (where I worked for six months).
So I plead yet again. Stop moaning. You are far better off than you appreciate.

Please tell that to the starving over here – Starving is starving where- ever you live. The starving have every right to moan. We are a first world country – not a third world country. Yet I now need to help provide breakfast for some of the poverty stricken children in my slum area school. They may be better off than the poverty stricken of Ethiopia – but they don’t live in Ethiopia. So they should moan loudly until this appalling “government” does something about it.

Hi both, though I know it’s slightly related, can we please move back to the debate about ‘free’ banking? Thanks.

Bob Bill says:
5 September 2012

Here’s HSBC’s idea of “Free” banking, you hold a current account for years then they change the terms and conditions including dropping paying interest. It’s free for them to hold my money and earn interest on it without passing it on to me

Some good news for those of you who were talking about this here – Santander has backtracked on plans to start charging existing small business customers with a ‘free banking forever’ account:


Margaret says:
19 October 2012

Why is it necessary for the bank to charge their customers for accounts which are in credit?
Remember, the banks invest our money, that is how they make huge profits at the end of the year.
Regarding the question of cheques, sole traders and small businesses who deliver to customers on their doorstep cannot afford the chip and pin equipment required for these payments, so they very much rely on cheques. It seems to me that we need a revolution in banking focussing on genuine customer care and service rather than corporate criminality and greed. Bank staff are now salespeople constantly seeking an opportunity to sell at every customer contact instead of focussing on customer concerns and trying to deal with them. Credit cards are being encouraged
at every opportunity despite whether customers pose a credit risk or not. This is morally wrong.

Dave says:
19 October 2012

Apparently they don’t need our money anymore which is also why saving interest rates are heading down down down. Now current account providers see another chance of getting our money.

There is nothoing free in life. I repeat. There is nothing free in life
That is the way it should be. I repeat. That is the way it should be

Martin Wheatley of the financial regulator has said the same: http://www.express.co.uk/posts/view/354699/Free-banking-is-a-myth

anita brooks says:
1 November 2012

What annoyes me most of all is when banks do not keep one informed of changes or even worse when they close accounts, do not inform you, and then keep my money which is what the Co0p Bank did to me.

anita brooks says:
1 November 2012

The most annoying thing with banks is when they do not keep one informed of changes – or worst of all when they close an account without telling and then just keep the money which is what happened to me with the co-op bank.